The proposed overhaul would replace paid-up capital criteria with market-cap thresholds, ease institutional share-sale rules and bring selected SME listing requirements closer to the mainboard.
Sebi has proposed a significant rewrite of the rules governing small and medium enterprise IPOs, shifting eligibility away from paid-up capital and towards market value, while also lowering the minimum application amount to ₹1 lakh and relaxing limits on share sales by institutional investors. The plan is part of a broader effort to make SME fund-raising less cumbersome, widen investor participation and bring selected SME rules closer to those used on the mainboard, while still retaining investor protections. According to the consultation paper issued on Wednesday, the regulator is also considering changes to promoter lock-ins, trading lots, underwriting and compulsory market-making.
Under the proposal, companies with a post-issue market capitalisation of up to ₹1,000 crore would need to list on the SME platform, while those valued above ₹1,000 crore and up to ₹4,000 crore could choose the SME route if they are prepared to file restated consolidated accounts under Indian Accounting Standards when necessary. Sebi also wants to lift the profitability threshold from a minimum operating profit of ₹1 crore in two of the previous three years to an average operating profit of ₹3 crore a year over the past three years, based on restated consolidated financial statements. Businesses that fall short of that test could still list through book-building if at least 75 per cent of the net offer is allotted to qualified institutional buyers, with refunds required if that threshold is not met.
The regulator is also seeking to make the SME market more accessible to retail investors by cutting the minimum application value in half to ₹1 lakh. Each lot would be worth at least ₹25,000, meaning investors would need to apply for four lots at minimum, while the trading lot in the secondary market would be reduced to one share. Sebi separately proposed a dedicated framework for offers for sale, including a one-year holding period for shares sold in such transactions, although it suggested exemptions for qualified institutional buyers from existing caps on the size of the OFS portion and the amount they can sell from their pre-issue stake. Those exemptions would not apply to IPOs that use the alternative route for companies failing the profitability test.
Sebi’s consultation also reaches into other parts of the SME fundraising structure. It wants to unwind some of the current promoter lock-in provisions, including removing the link between the three-year lock-in for minimum promoter contribution and the start of commercial production, and replacing the staggered release of additional promoter holdings with a one-year lock-in. Lock-ins for pre-issue non-promoter holdings would fall from one year to six months, while promoter-group shares would remain locked in for one year. The regulator is also proposing to remove the ₹10 crore absolute cap on general corporate purpose spending, while keeping the 15 per cent ceiling on issue size. The SME platform has raised ₹40,222 crore since launch and has seen 365 companies move to the mainboard, according to Sebi data as of 31 July 2026. Sebi has asked for public comments by 4 November.
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